US jobs: another positive payrolls surprise

Keith Wade

Keith Wade

Chief Economist & Strategist

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Just as the doubts were creeping in over the strength of the US economy, we get another strong employment report. Non-farm payrolls1 rose 255,000 in July compared with expectations of a 180,000 gain. Net revisions were positive so last month’s increase was revised up by 5,000 to 297,000.

Strength was also seen in average hourly earnings (up 0.3% month-on-month, to 2.6% year-on-year) and average hours worked which came in at 34.5. Both these items were above expectations.

The only disappointment was on the unemployment rate, which remained at 4.9% against expectations of a decline to 4.8%, although this reflected an increase in the participation rate.

Economic activity picking up

Today’s figures suggest that US activity is picking up pace as companies hire and wages strengthen. The weak GDP growth recorded in the second quarter looks to have been unduly depressed by inventory cuts which will drop out in the current quarter.

The pace of jobs growth combined with hours worked points to an economy accelerating in the current quarter.

The figures are surprising against a backdrop where company earnings are declining even outside the energy sector, but suggest that companies are seeing health in underlying demand. This would only be confirmed though if business capital spending also begins to revive after a soft second quarter.

December rate rise on the cards

As far as the Federal Reserve is concerned, this keeps the door open to a rate rise in December. Political risk will keep the central bank on the side lines before then.

1. Non-farm payrolls are a means of measuring employment in the US and represent the total number of people employed, excluding farm workers, private household employees and those employed by non-profit organisations.